China Stocks fall, spooked by yuan's fall

Headline indices of the Mainland China equity market declined on Friday, 20 July 2018, on tracking weak cues from Wall Street overnight amid U.S. President Donald Trump's criticism of the Federal Reserve and the latest flare up in trade tensions with the United States after the People Bank of CIna set its reference rate to lowest in a year. Around afternoon, the benchmark Shanghai Composite Index fell 0.12%, or 3.34 points, to 2,769.20, meanwhile the Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped 0.23% or 3.66 points, to 1,571.92. The blue-chip CSI300 index sank 0.4%, or 13.56 points, to 3,414.78.

The US President Donald Trump on Thursday criticized Fed policy and expressed concern about the potential impact of rising rates and a stronger dollar on the U.S. economy and American corporate competitiveness.

China's central bank lowered its midpoint for the yuan for the seventh straight trading day and to its lowest in a year. The People's Bank of China set the official mid-point at 6.7671 before the market open, the weakest fixing in a year. With China showing little signs of arresting its currency's depreciation, the yuan promptly retreated to a near 13-month low. There are several channels through which the yuan's weakening is hitting Asian market. First, a weaker yuan challenges the competitiveness of other Asian economies. Second, the weaker currency also causes fears of capital leaving China and disrupting their capital markets, which could have knock-on effects on Asia. Lastly, a weaker yuan deepens trade war concerns.

The yuan hit its lowest level in a year on Thursday, and down nearly 8% over the past three months amid a global trade spat and concerns over an economic slowdown in China. The yuan's latest dip came after China's central bank indicated that it was willing to accept a weaker currency. A sliding currency could help China's huge export industry cope with new US tariffs, as it makes Chinese products cheaper for buyers who pay in dollars. That could in turn boost an economy that posted its slowest growth rate in nearly two years 6.7% in the second quarter. Unlike the dollar or euro, the yuan does not float freely against other currencies. Instead, China's central bank helps guide the currency by setting a daily trading range. On Thursday, it surprised investors by guiding the yuan lower.

INDUSTRY NEWS: The China banking and insurance regulator has asked financial institutions to earnestly implement plans to help reduce financing costs for small firms, saying that big lenders should take the lead, according to a statement posted on its website. Meanwhile, the People's Bank of China is said to plan the use of its Medium-term Lending Facility (MLF) to encourage bank loans and investment in lower-rated corporate debt. New credit as a percentage of GDP declined to an almost-three-year low in June, as a government-driven campaign to reduce financial risk couples with weaker output.

OFFSHORE MARKET NEWS: US stock market closed down on Thursday, due to negative reaction to disappointing earnings news from several big-name companies. The Dow slid 134.79 points or 0.5% to 25,064.50, the Nasdaq fell 29.15 points or 0.4% to 7,825.30 and the S&P 500 dropped 11.13 points or 0.4% to 2,804.49.

The major European markets closed mixed on Thursday. The U.K.'s FTSE 100 Index inched up by 0.1%, while the French CAC 40 Index and the German DAX Index both slid by 0.6%.

COMMODITY NEWS: Crude oil prices were mixed on Thursday. The Brent crude oil price dropped on rising oversupply concerns and US dollar strength. But Saudi Arabia's OPEC Governor Adeeb Al-Aama said that crude oil exports would fall by around 100,000 barrels per day in August to limit excess production. Brent crude fell by US32 cents or 0.4% to US$72.58 a barrel, but the US Nymex rose by US70 cents or 1% to US$69.46 a barrel.

Base metal prices were down on the London Metal Exchange (LME) on Thursday. Copper (-1.4%) fell below US$6,000 a tonne during the trading session for the first time in 12 months as the US dollar strengthened and concerns over the impact of tariffs on global growth re-intensified. Tin rose by just 0.1%.

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